2023 (6) TMI 769 - AT - Income Tax

Addition on account of community development expenses - AO disallowed the expenditure merely on the basis that the said expenditure are not incurred wholly and exclusively for the purpose of business - HELD THAT - As it cannot be disputed that the expenditure incurred on environment health and safety, as stated above, are relevant considering the business in which the assessee is engaged, i.e. development and implementation of coal-based thermal power project. Therefore, once the expenditure has been accepted to be for the community development, and environment health safety expenses, the same cannot be held to be not incurred wholly and exclusively for the purpose of business in the year under consideration. We find no infirmity in the impugned order passed by the learned CIT(A) on this issue. Ground raised in Revenue s appeal is dismissed. Allowance of additional depreciation - asset put to use for less than 180 days during the earlier year - assessee has claimed balance of depreciation @10% (i.e. 50% of the applicable rate of 20% as per section 32(1)(iia)) as additions depreciation during the current year - HELD THAT - Hon ble Karnataka High Court Rittal India (P) Ltd. 2016 (1) TMI 81 - KARNATAKA HIGH COURT held that if the plant and machinery eligible for additional depreciation u/s 32(1)(iia) are put to use for less than 180 days in said financial year and, therefore, only 50% of additional depreciation can be claimed in that year, balance 50% can be availed in the subsequent year. No infirmity in the impugned order passed by the learned CIT(A) on this issue. As a result, ground no.2 raised in Revenue s appeal is dismissed.

Summary

Issues Involved:
1. Deletion of addition on account of community development expenses.
2. Allowance of additional depreciation.

Summary:

Issue 1: Deletion of Addition on Account of Community Development Expenses

The Revenue challenged the deletion of an addition of Rs. 2,43,98,882/- on account of community development expenses by the learned CIT(A). The assessee, engaged in power generation, claimed these expenses as business-related under "other expenses." The AO disallowed the expenses, stating they were not incurred wholly and exclusively for business purposes. However, the learned CIT(A) allowed the appeal, and the Tribunal upheld this decision. The Tribunal noted that the AO did not dispute the nature of the expenses but disallowed them based on their perceived non-business nature. The Tribunal emphasized that the amendment excluding CSR expenses under section 37(1) of the Act was effective from 01/04/2015 and not applicable to the assessment year 2014-15. Thus, the expenses were deemed allowable under section 37(1) of the Act, and the Tribunal found no infirmity in the learned CIT(A)'s order.

Issue 2: Allowance of Additional Depreciation

The Revenue contested the allowance of additional depreciation of Rs. 200,80,07,557/- claimed by the assessee. The AO disallowed the claim, arguing that additional depreciation is allowable only in the year of acquisition and use of the plant and machinery, as per section 32(1)(iia) of the Act. The learned CIT(A) allowed the claim, and the Tribunal upheld this decision. The Tribunal referenced the Karnataka High Court's decision in CIT v/s Rittal India (P) Ltd, which held that if plant and machinery are used for less than 180 days, the balance of additional depreciation can be claimed in the subsequent year. The Tribunal concluded that the assessee was entitled to claim the balance 10% of additional depreciation in the subsequent year, finding no infirmity in the learned CIT(A)'s order.

Conclusion:

The Tribunal dismissed the Revenue's appeal on both issues, upholding the decisions of the learned CIT(A) on the deletion of community development expenses and the allowance of additional depreciation. The order was pronounced in open court on 15/06/2023.